External Constraints on Economic Policy in Brazil, 1889–1930

273 Pages·1988·24.461 MB·English

by  Winston Fritsch (auth.)

EXTERNAL CONSTRAINTS ON ECONOMIC
POLICY IN BRAZIL, 1889-1930
External Constraints
on EconoDlic Policy in
Brazil, 1889-1930
Winston Fritsch
Associate Professor of Economics
Catholic University of Rio de Janeiro
M
MACMILLAN
PRESS
© Winston Fritsch 1988
Softcover reprint of the hardcover 1st edition 1988 978-0-333-44369-9
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First published 1988
Published by
THE MACMILLAN PRESS LTD
Houndrnills, Basingstoke, Hampshire RG21 2XS
and London
Companies and representatives
throughout the world
British Library Cataloguing in Publication Data
Fritsch, Winston
External constraints on economic
policy in Brazil, 1889-1930.
1. Macroeconomics 2. Brazil - Economic
policy 3. Brazil-Foreign economic
relations
I. Title
339' .0981 HC187
ISBN 978-1-349-09582-7 ISBN 978-1-349-09580-3 (eBook)
DOI 10.1007/978-1-349-09580-3
For Lilian
Contents
List of Tables IX
Preface xi
Acknowledgements xv
Brazilian Currency Notation xvi
1 The Shaping of the First Republic: an Introduction 1
1.1 Birth and consolidation of the new regime 1
1.2 Economic policies in the consolidation period 4
2 The Pre-war Gold Standard 13
2.1 The coffee valorisation-exchange stabilisation debate
and its consequences 13
2.2 Tiding over the 1907-8 world recession 18
2.3 The boom of 1909-1912 22
2.4 Collapse and crisis: 1913-14 28
3 The World War 33
3.1 The early response to the disruption of world trade
and payments 33
3.2 Readjustment to changed international economic
conditions 38
3.3 The end of Brazilian neutrality 45
4 The Impact of the World Postwar Boom and
Slump: 1919-22 53
4.1 The postwar boom and agitation for banking
reform 53
4.2 World slump and the support of coffee prices in
1921-2 58
4.3 Domestic recovery and the fiscal crisis of 1922 69
5 Attempts at Financial Reconstmction 75
5.1 President Bernardes' economic policy programme and
the constraints on its early enforcement 75
5.2 The Montagu mission 86
vii
viii Contents
5.3 Narrowing options and deflationary adjustment 98
5.4 The end of federal coffee defence 107
5.5 Domestic recession, world recovery and the politics of
international finance 110
6 The Postwar Gold Standard 119
6.1 The politics of exchange rate policy and the return to
gold 119
6.2 Sao Paulo's reorganisation of coffee defence 126
6.3 The 1927-8 economic recovery 130
6.4 The onset of the 1929 Brazilian recession 138
6.5 The collapse of Sao Paulo's coffee defence
programme 142
6.6 The crisis of 1930 149
7 Conclusions 161
Appendix: Statistical Tables 171
Abbreviations 209
Notes and References 211
Bibliography 255
Index 263
List of Tables
TEXT TABLES
2.1 Brazil: 1908-10, quarterly trade balance 23
2.2 Brazil: 1910-13, federal revenue, expenditure and
credit operations 25
2.3 World rubber output and prices: 1909-18 27
3.1 Brazilian exports to selected countries: 1913-16 35
3.2 Brazil: 1913-17, revenue from import and
consumption duties 41
3.3 Brazil: 1913-17, net export quantity of selected
non-traditional exports 42
3.4 Brazil: 1913-17, structure of imports by classes
of use 43
3.5 Brazil: 1913-17, annual rates of real growth of imports
by classes of use 43
4.1 Brazil: 1919-22, quarterly monetary ratios 71
4.2 Brazil: 1919-22, share of national and foreign banks in
total sight deposits 72
5.1 Price Indices: Brazil, U.S. and U.K.: 1920-24 102
6.1 Brazil: 1927-8, half-yearly trade balance 139
6.2 New capital issues for foreign account on New York
and London: 1926-8 139
6.3 Liabilities of failures in Rio de Janeiro: 1927-9 142
6.4 Sao Paulo: 1927, size distribution of coffee farms 145
APPENDIX TABLES
A.1 Brazil: 1900-30, real output indices 172
A.2 Brazil: 1901-1930, selected domestic activity and
capital formation indicators 174
A.3 Brazil: 1889-1930, price indices 176
A.4 Brazil: 1901-30, foreign trade indices 177
A.5 Brazil: 1889-1930, commodity composition of
exports 179
A.6 World coffee production, stocks and prices:
1889-1930 181
ix
x List of Tables
A. 7 Sao Paulo: 1909-30, number of trees, new planting
and average yield of coffee trees 184
A.8 Monthly world coffee prices: 1906-30 185
A.9 Brazil: 1889-1930, yearly exchange rates 187
A.10 Brazil: 1905-30, monthly exchange rates 188
A.ll Brazil: 1889-1930, main identifiable balance of
payments items 189
A.12 Brazil: 1890-1930, yearly revenue and expenditure of
the federal government 192
A. 13 Brazil: 1890-1930, federal government revenue
structure 194
A.14 Brazil: 1890-1930, federal government expenditure
structure 196
A.15 Brazil: 1890-1930, outstanding issue of long-term
federal bonds 197
A.16 Brazil: 1889-1930, the money stock and its
components 198
A.17 Brazil: 1889-1930, breakdown of outstanding note
issue by issuing authority 203
Preface
The object of this book is to describe the conduct of economic policy
in Brazil during the country's heyday as an export economy, the
'First', or 'Old', Republic as the formally liberal regime of the
Constitution of 1891 - which extends from Abolition and the down
fall of the Empire to the Revolution of 1930 - became known in
Brazilian political historiography.
An important motivation of this work from an early stage has been
to study and, as far as may be, critically to revise some conflicting
explanations of the political rationale in the use of the basic core of
policy instruments available to the federal government during the
First Republic - that is, monetary, fiscal, exchange rate, coffee price
support and foreign indebtedness policies. Until a few years ago most
would agree that this was not a controversial issue. The bulk of
post-1930 literature explained the conduct of economic policy during
the First Republic as being straightforwardly conditioned by the
corporative interests of the coffee trade, based on a sketchy analysis
of the system of political domination and control built up by the
civilian plutocracy in the late nineties and the resulting hegemonic
position which the larger coffee planters of Sao Paulo and their
commercial and banking connections came to occupy within it. The
alleged unrestrained exercise of the political muscle of the coffee
interests in shaping economic policy was illustrated, according to this
traditional view, by the notions that the Executive was always pre
pared to lend support to coffee valorization schemes and that the
secular depreciation of the miln!is resulted from politically motivated
decisions aimed at benefitting the leading sector of the export
producing bourgeoisie.
During the past decade, however, the traditional interpretation has
been challenged from two different sides. On the one hand, it has
been forcefully put forward in influential works by economic his
torians, that the conduct of economic policy was predominantly
influenced by the application of orthodox principles of monetary,
fiscal and exchange rate policy. The argument is constructed in such
1
a way as to reveal the adherence of a great number of influential
contemporary public men to orthodox principles of financial policy,
at least in their public statements. From this is derived the strong claim
that these doctrinaire principles actually shaped policy decisions in a
xi